Regulation Czar’s Net Effect

by Chidem Kurdas

Cass Sunstein, the White House regulatory affairs chief, is going back to academia.  It is not clear why he chose this particular time to return to Harvard Law School, leaving behind what looked like an experiment to implement the notions he advocated.

Has he made a difference as federal overseer of rulemaking? The record is at best mixed, at worst a prime example of how academic ideas can enable political hypocrisy. Continue reading

Uncertainty and the Keynesians

by Chidem Kurdas

At the current economic juncture two camps offer diametrically opposed macro policy prescriptions. Economists on the Keynesian side such as Joseph Stiglitz and Paul Krugman advocate further monetary easing by the Federal Reserve and massive new federal deficit spending. The opposing camp includes Austrians and monetarists. Among its distinguished members is Allan Meltzer, who in a recent Wall Street Journal op-ed column argues against monetary stimulus and favors reduced government spending.

These correspond to two ways of understanding the sluggishness of the US economy,  explanations based on different time horizons Continue reading

Remember Those Oil Speculators?

by Chidem Kurdas

Less than two months ago, President Obama claimed that speculators were (or at least might be) artificially driving up the price of oil—a notion that some politician or pundit  brings up every time gasoline looks expensive. The idea fades when the market changes direction. Thus in recent weeks, economies worldwide took a turn for the worse and the price of oil came down a notch. Continue reading

Politics of Oil Prices

by Chidem Kurdas

Oil from North Dakota is selling at a record discount, according to a March 1st news item in the local paper, the Bismarck Tribune.   By contrast, here in New York gasoline prices are near record highs. Between North Dakota and New York are thousands of miles but more crucially standing between us is a gigantic entity, the federal government.

With North Dakota’s Bakken and Three Forks shale formations producing at a rip roaring rate, the issue is getting the oil to refineries and from refineries to population centers. The Bismarck Tribune article quotes the State Mineral Resources Director, who said: “prices for North Dakota sweet crude generally mirrored West Texas Intermediate prices last year but began widening in January when President Barack Obama temporarily halted the $7 billion Canada-to-Texas Keystone XL pipeline, which would have carried 100,000 barrels of crude daily from North Dakota and Montana.”

Presidential obstruction of Keystone XL is one factor. The producers are getting around the lack of pipeline by transporting some of the crude to Louisiana via rail. But that doesn’t much help northeasters like me. There’s this federal law called the Jones Act, which was in the news in 2010 after the BP oil rig disaster in the Gulf of MexicoContinue reading

President Obama’s State of Regulation

by Chidem Kurdas

Barack Obama sounded a number of themes in his 2012 State of the Union Address this week, all underpinned by the proposition that socioeconomic ills can be solved by interventionist government in general and his administration in particular.

Indiana governor Mitch Daniels, giving the Republican rebuttal, effectively replied to the main claims. He pointed to the failure of  the President’s “grand experiment in trickle-down government.” Programs spend borrowed money in attempts to boost the middle class. “In fact, it works the other way: a government as big and bossy as this one is maintained on the backs of the middle class,” Mr. Daniels said.

Mr. Obama’s points about regulation drew less attention. Continue reading

Energy Policy vs. Market

by Chidem Kurdas

No matter how thoroughly public policy fails, there is no end to efforts in the same area.  Energy is a case in point. Reviewing the history of US energy policy in his new book, Columbia University legal scholar Michael Graetz writes: “The book  is, then, in one sense a story of failure…”  Continue reading

Politics of Healthcare Rationing

by Chidem Kurdas

The Obama administration’s remake of the US healthcare system stands on three legs. It makes the purchase of insurance compulsory. It doles out new entitlements via expanded Medicaid, subsidies and certain benefit mandates. And it promises to control the growth of medical costs. The title of the 2010 law, the Affordable Care Act, highlights the cost containment feature and Paul Krugman, for instance, has repeatedly cited a Congressional Budget Office prediction that the changes would reduce the federal budget deficit by keeping down costs.

Now we have more information as to how this supposed cost containment works. Continue reading

Revolution on Wall Street?

by Chidem Kurdas

Protestors have “occupied” a square near Wall Street for weeks. Hundreds of them were arrested, some 700 while blocking the Brooklyn Bridge. The movement may be spreading to other American cities. At least one demonstrator says: “This is a revolution.”

They complain of joblessness and the inequities of global capitalism, though the sources of their distress vary widely, from having to pay back student loans to the depredations of the internal combustion engine. At this point their immediate, tangible adversary appears to be the New York Police Department. It is easy to make fun of disaffected middle-class kids with Apple computers camping out in Downtown Manhattan. They bask in media limelight while taunting working-class cops. Still, we should try to understand the matter. Continue reading

Financial Crisis from Lehman to Europe

by Chidem Kurdas

The current financial crisis is a reverse of the 2008 disaster in key respects. Then, investment banks were seen as the main culprits while governments appeared in the guise of cavalry riding to the rescue. The trouble originated in the United States and spread to Europe. This time, the culprits are certain governments, the problem is European and how badly it will affect the American financial system is a question. How did the crisis go from US-based mortgage securities and Lehman Brothers to Italian sovereign debt and French banks?  Continue reading

Tax Baseline Key to Debt Fight

by Chidem Kurdas

Neither House Republican Speaker John Boehner  nor Senate Democratic Majority Leader Harry Reid propose tax increases in their competing deficit and debt-ceiling plans. Indeed, the Reid plan’s omission of tax hikes is described by Democrats as a major concession to Republicans.

But even if there are no new obligations, taxes are primed to go up. That baseline, biased in favor of a growing tax burden, is key to proposed deals and will no doubt remain the pivotal point in budget negotiations long after the current debt ceiling is broached.

In a recent report on the long-term fiscal outlook, the Congressional Budget Office  estimated that the wide range of tax increases built into current law would generate substantial additional tax revenue and boost the share of taxes to levels not seen in recent decades. That’s the baseline scenario. Continue reading

Debt Deal as Salami Strategy

by Chidem Kurdas

Yes, a federal debt deadline is looming and, yes, it has become conventional wisdom that something needs to be done about the deficit and resulting debt. Having watched the  political jockeying, I am now persuaded that the notion of a bi-partisan deal to tackle the deficit is likely a trap.

To raise the debt ceiling, President Obama urges Republicans to accept a bargain that includes higher taxes and spending cuts. Note the reasoning: “The money’s been spent,” he reportedly said. “So this is urgent, and it needs to get settled.”  

Suppose Republicans agree to ending some tax breaks as Mr. Obama proposes. Next time around, he comes back with another oh dear, we already spent the money, you’ll have to raise some other taxes and, of course, the debt ceiling again. And so on and so forth, with Leviathan in the main protecting its ample bulk. Continue reading

Broken Banks, Durable Delusions

by Chidem Kurdas

Some 829 commercial banks are at risk of failure, according to the Federal Deposit Insurance Corp.  This year 118 banks already failed and were taken over by the FDIC. At this rate, more banks will fail in 2010 than in 2009. If bank regulators were a commercial bank, they too would have gone bust. But being government entities, they prosper as the industry they oversee declines.

Investment banks dominated the public discussion in the run-up to the gigantic new financial regulation law. Regulation advocates argued that investment banks took excessive risk and needed to be more heavily regulated. Commercial banks were not the focus of the discussion—-because they have been heavily regulated since the early 20th century.

In fact, commercial banks are about as regulated as possible for private enterprises. Further regulation would turn them into an arm of the government—along the lines of mortgage financer Fannie Mae, currently a black hole that sucks taxpayer money. Continue reading

Gigantism in Lawmaking

by Chidem Kurdas

Here’s another aspect of Obamacare. Last week we witnessed a demonstration of how politicians benefit from a massive law. President Obama signed the vast bill – 2409 pages – with great fun fare.  A video of the signing was all over the web.   The media was full of gushing reports.  Mr. Obama was explicitly praised for refusing to take small steps.

Had it been a more modest measure, it would not have generated all this hoopla and its signing would likely not have been applauded as a historic landmark. For politicians, a colossal piece of legislation has the built-in advantage of providing dramatic theatrics. But that’s not all. Giant laws have other benefits as well for the powers-that-be in Washington. Continue reading